Legacy Payments: These Prices Make it Intriguing


Let’s not forget Nexi’s competitive position 


While the Italian payments company has faced recent pressure and criticism for a perceived lack of catalysts, we maintain the view that the recent sell-off has been overly harsh. Nexi is steadily enhancing its margins, and our model predicts a substantial 630bp increase from the present until 2025.  

Furthermore, Nexi operates in some of the least digitalised countries in Europe when it comes to payments, including Italy, Germany, and Poland. According to the latest reports from Worldpay, approximately 27% of POS payment methods in Italy still involve cash. However, by 2026, this figure is expected to decrease to just 15% of all transactions. In Italy, Nexi currently commands an impressive 80% market share. Even in the event that the new JV involving Banco BPM, FSI, and BCC Iccrea gains some market share, Nexi is poised to remain the unquestioned leader in driving digitalisation within the Italian payment landscape. 

A similar argument can be extended to the DACH region (Germany, Austria, Switzerland) and Poland, where cash usage is relatively high, standing at 39%, and Poland is anticipated to undergo faster digitalisation. In these regions, Nexi holds a lower market share, typically ranging from 10% to 15%, positioning it more as a challenger. Nonetheless, it is worth noting that this segment offers the highest growth potential among the regions, with a yoy growth rate of 8.1% for the group, compared to 9.5% for the DACH & Poland segment. 

Furthermore, we anticipate that the issuing solutions segment will experience increased growth. The impact of pricing renegotiations that Nexi is expected to make in cross-selling its portfolio of value-added solutions should boost growth. Consequently, we have adjusted our projections to account for this shift in strategy. 

It is worth noting that the upcoming quarters may present challenges as inflation decelerates and growth is influenced by a higher base effect, along with potential downward revisions to economic growth that could impact consumer spending. However, despite these near-term challenges, we believe that Nexi is undervalued at its current price. 

Worldline’s fundamentals opens the door for further M&A


Worldline’s H1 23 EPS exceeded our expectations primarily due to lower interest expenses, amounting to €15m, compared to the €45m we had anticipated. Worldline is actively reducing its leverage, with a net debt/OMDA ratio of 1.6x, thereby strengthening its balance sheet. This improved financial position will support Worldline in continuing its growth strategy, which involves pursuing acquisitions and, if needed, at higher prices. As confirmed by management, Worldline’s strategy remains focused on investing its cash in bolt-on M&A opportunities. 

Worldline is demonstrating an improvement in its margin as well, with a projected increase of 310bp in the OMDA margin from 2022 to 2025. The MS unit continues to be viewed as the driving force behind the company’s growth, with anticipated growth rates of 12.6% for FY23, 10% for FY24, and 8.5% for FY25. 

Worldline is strategically positioning itself ahead of Nexi for potential expansion in the European payment industry. With its excellent leverage ratio, Worldline has the potential to become a significant player in the ongoing consolidation of the European payments space in the near term. Both Worldline and Nexi have played pivotal roles in this consolidation, and their increasing scale allows them to be more competitive in terms of pricing. This competitiveness has prompted banks to consider selling their merchant portfolios and divesting payment-related assets. 

Our preference is for more traditional M&A deals rather than the JV-like format seen in the CASA deal. We believe that Worldline’s strong balance sheet provides the necessary flexibility to potentially pay a slightly higher price for acquiring the last available assets in the market, even as acquisition prices continue to rise. 

In February 2022, Worldline divested its POS terminal business to Apollo for nearly €2.3bn. This strategic move significantly strengthened Worldline’s balance sheet. Prior to the transaction, Worldline had a net debt of €3.5bn at the end of 2021, resulting in a net debt/OMDA ratio of 4.1x. By the end of the first half of the year (H1), Worldline had reduced its net debt to €1.8bn, which translated to a much-improved leverage ratio of 1.6x. This reduction in leverage provides Worldline with greater financial flexibility and stability for future acquisitions. 

Similar to our considerations for Nexi, we anticipate that the upcoming quarters may be affected by the high base, although to a lesser extent compared to the Italian firm. Factors contributing to this include the deceleration in inflation and the softening of consumer spending.  

Impact 

Nexi and Worldline have both experienced sell-offs that appear to be linked to Adyen’s underperformance. However, we believe the market’s comparison of Adyen to Nexi and Worldline is somewhat misplaced, as these companies have distinct focuses within the payment industry. 

Furthermore, Adyen’s concern for investors has largely revolved around intense pricing competition in the North American online segments. It is important to note that neither Nexi nor Worldline operate in that region nor have plans to do so. Given these differences, we maintain our BUY recommendations and believe that the current price levels offer an attractive entry point for investors. 

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